Harvard Business Review

MARCH 28, 2011

For example, many US companies depend on China as a supply base. What would happen to their costs if the renminbi's value rises overnight from RMB 6.5 Companies keep costs down by building supply chains that generate economies of scale. Variabilizing costs. They can ensure that by: Diversifying supply bases. to RMB 4.5

Supply Chain 15

Supply Chain Fixed Costs Price Crisis 15

Harvard Business Review

SEPTEMBER 4, 2013

For example, a decade ago, it''s unlikely that small-business owners would have told you that they needed a flexible way to host data and applications, one that preferably turned the fixed cost of computer hardware into a variable cost of renting capacity. When the company rides an enabling trend.

Industry 8

Industry Fixed Costs Trends Innovation 8

Harvard Business Review

DECEMBER 21, 2011

Within the first year of our effort net sales increased 27 percent while fixed costs were reduced by 40 percent. Not all fixed cost reductions were people. This success is an example of how, when properly applied and executed, HR can have a significant and measurable impact on a company.

Offshoring 14

Offshoring Fixed Costs Outsourcing Construction 14

Harvard Business Review

MAY 2, 2013

The key components that lead to a solution are as follows: Understand the dynamics of a high fixed cost/low variable cost industry. While pharma companies spend billions on research, the actual cost of manufacturing a treatment (such as a pill) is minimal. This cost structure enables pricing flexibility.

Discount 8

Discount Price Fixed Costs Pharmaceuticals 8

Harvard Business Review

DECEMBER 1, 2017

So not only were the current fees too weak to support his fixed costs, but future clients were turned off by his apparently excessive tastes. To address those cost overruns, Colin subleased some space, cancelled a redundant and very expensive trading service, and let one person go.

Strategy 8

Strategy Budgeting Cost Price 8

Harvard Business Review

APRIL 6, 2016

For example, Lycamobile, a big mobile VNO, focuses on expatriate communities looking for low-cost international pay-as-you-go calls in 19 countries. For example, in 2015, Maersk and MSC, the world’s two largest liner shipping companies, established 2M, a 10-year vessel sharing agreement covering 193 vessels.

Co-Opetition 8

Co-Opetition Operations Cost Technology 8

Harvard Business Review

JULY 12, 2018

A second important deficiency arises from the fallacy that a cost-plus price is guaranteed to cover costs. Cost-plus prices provide no guarantee of covering costs or earning a profit. Third, the cost-plus pricing calculation ignores both the customer’s willingness to pay and the competitors’ prices.

Price 9

Price Cost Tactics Retail 9

Harvard Business Review

MARCH 16, 2017

Consider the example of a new drug for curing baldness. A drug company must incur a large fixed cost to do the basic research, so it has strong incentives to predict what the demand for the drug will be if its research succeeds. In other words, climate skeptics don’t just stymie progress on climate policy.

Entrepreneur 9

Entrepreneur Aggregate Demand Incentives Real Estate 9

Harvard Business Review

DECEMBER 17, 2014

Let me give you an example. Eden McCallum, thus, manages to keep its overhead and other fixed costs at a minimum. The only thing the consultants (usually ex-McKinsey, Bain, or BCG) are responsible for is to execute these projects to the best of their abilities.

McCallum 13

McCallum Competitive Advantage McKinsey Consultative 13

Harvard Business Review

JUNE 24, 2013

But it''s important to consider how incredibly rare these examples are. An oft-cited example of this phenomenon is the difference in perceived risks between getting on an airplane and getting in an automobile. How will you generate enough transactions to cover the fixed costs involved in running your business?

Venture Capitalist 8

Venture Capitalist Supply Chain Long-term Christensen 8

Harvard Business Review

FEBRUARY 24, 2015

For example, a divested business may inherit assets and capabilities that have been starved of investment by its former parent. For example, after its spin-off from International Paper, Arizona Chemical drastically changed its market approach from a drive for volume to margin optimization. Mergers & acquisitions'

Chemicals 8

Chemicals How To Kahneman Reputation 8

Harvard Business Review

JUNE 4, 2015

Since theme parks are high fixed cost/low variable cost entities, revenue from discount-enticed new customers is virtually all profit… free money. Restaurants, for example, often charge “market price” for seafood entrees to reflect varying supply conditions. This would result in growth. I think so.

Price 8

Price Course Discount Fixed Costs 8

Harvard Business Review

MAY 28, 2018

While companies are required to share the same materials with all investors, they can emphasize the elements that will be most relevant to particular investor segments—highlighting stable cash flow for pension funds or payouts for growth-oriented investors, for example. The number of directors and officers would be reduced.

Company 8

Company ROIC CFO Restructuring 8

Harvard Business Review

APRIL 5, 2017

However, firms can efficiently increase margin growth without much revenue growth by managing to squeeze out their fixed costs to service the same level of output. Consider three examples. McKinsey’s margin growth measure classified firms that report higher earnings growth than revenue growth as myopic.

EPS 8

EPS Metrics Depreciation Short-term 8

Harvard Business Review

JULY 22, 2011

For example, every day I hire a Coke to be a wake-me-up mid-afternoon break in my workday. I could substitute a free cup of coffee from my own office, which would provide my much-needed caffeine at no cost. It was in your home, had no shelf space limiting its inventory, and could beat Tower on price because of its lower fixed costs.

Christensen 16

Christensen Disruptive Innovation Price Business Model 16

Harvard Business Review

NOVEMBER 10, 2016

At athenahealth, for example, we have a rules engine with 40 million billing rules (yes, there are that many ways to be denied) that enables us to execute our clients’ work more efficiently than they ever could alone. On any given day in America, 40% of hospital beds lie empty, their enormous fixed costs weighing heavily on the system.

Health Care 9

Health Care Power Hotels Transportation 9

Harvard Business Review

JULY 27, 2017

And the fixed cost from “touchpoint-to-pilot” are immense. For example, in the case of a $100 million CVC fund, which can close five to 10 investments a year, these costs typically range from $1 to $2 million per startup — not including the administrative and variable costs of the pilot itself.

Venture Capitalist 8

Venture Capitalist Meyer Innovation Fixed Costs 8

Harvard Business Review

NOVEMBER 15, 2018

Here are some examples of what will be required to change the operating culture: Contract rationalization. In larger facilities, there is often an astonishing proliferation of special care units, ICUs, and quasi-ICUs that are expensive to staff and have high fixed cost profiles.

Cost 10

Cost System Management Franchising 10

Harvard Business Review

APRIL 19, 2011

Meanwhile, declines in revenue and escalating fixed costs for things like public employee pensions and health care are crippling our cities budgets. Under the gun, many are proposing cuts that may produce short-term savings but could result in longer term costs. They have become the dominant forces in our economy and society.

Short-term 12

Short-term Budgeting Health Care Long-term 12

Harvard Business Review

NOVEMBER 18, 2013

For example, hospital systems’ ability to receive premium prices for higher quality and more consistent care in a market is now being limited by greater consumer and employer price sensitivity, increased scrutiny on industry profits, and regulatory concerns about hospital mergers.

Health Care 8

Health Care System Cost Price 8

Harvard Business Review

MAY 21, 2015

The costly and complex operations of transporting energy have made utilities natural monopolies, while regulatory barriers and the high fixed costs of building and maintaining regional electrical grid infrastructure have also kept much competition at bay.

Energy 8

Energy Transportation Software Price 8

Harvard Business Review

AUGUST 17, 2012

That may be true, but then the firms that do carry out the R&D are also dominant in their developed domestic markets, where their margins can absorb the fixed costs of R&D and there's nothing to stop them from competing on a cost basis in Africa, particularly given the low production costs of most drugs.

Company 11

Company Pharmaceuticals Business Model Fixed Costs 11

Harvard Business Review

SEPTEMBER 9, 2015

During an economic crisis, the exaggerated decline in orders can be especially damaging to upstream suppliers that have high fixed costs tied to production assets. For example , U.S. This phenomenon has been documented in the consumer-packaged-goods , food , semiconductor-manufacturing , and other industries.

Supply Chain 8

Supply Chain Retail Crisis Operations 8

Harvard Business Review

DECEMBER 25, 2013

For example, a bar chart by time period, one of the most common visual tools used, may not show the widening gap. Further, sales variation can get widened much more when it comes to financial variation because of fixed costs. It is not uncommon for a 5% drop in revenue to result in a 30% drop in profitability.

Business Intelligence 8

Business Intelligence Information Technology Uncertainty Fixed Costs 8

Harvard Business Review

MARCH 1, 2018

To address these issues, some have suggested putting limits on the way insurers design their drug formularies, including caps on out-of-pocket drug costs and limits on insurers’ ability to use prior authorization and step therapy requirements to create barriers to drug utilization. Problems may get worse.

Cost 8

Cost Insurance Incentives Policies 8

Harvard Business Review

FEBRUARY 11, 2016

This arrangement is often complicated by inconsistent decision criteria: purchasing wants the lowest price and a fixed cost, whereas the business or operation wants the best resource, a good cultural fit, and enough flexibility in the contract to allow for changes in scope or strategy.

Agility 8

Agility Organization Resources Fixed Costs 8

Harvard Business Review

JULY 2, 2014

It’s a simple calculation to determine how many units must be sold at a given price to cover one’s fixed costs. To show how this works, let’s take the hypothetical example of a high-end kite maker. Assume she must incur a fixed cost of $25,500 to produce and sell a kite. That’s the breakeven point.

Analysis 15

Analysis Fixed Costs Price Cost 15

Harvard Business Review

NOVEMBER 29, 2013

A fascinating business dynamic will unfold as health care providers in the United States shift from a reimbursement system that has historically paid for procedures performed to one that rewards population health — providing the total care of a community at a fixed cost and improving its members overall health.

Health Care 8

Health Care Committee Cost Operations 8

Harvard Business Review

JULY 2, 2014

It’s a simple calculation to determine how many units must be sold at a given price to cover one’s fixed costs. To show how this works, let’s take the hypothetical example of a high-end kite maker. Assume she must incur a fixed cost of $25,500 to produce and sell a kite. That’s the breakeven point.

Analysis 8

Analysis Fixed Costs Price Cost 8

Harvard Business Review

AUGUST 11, 2011

Management has made promises to senior executives about what a project will achieve, and fixed costs have built up because they looked prudent in comparison to planned revenues.

Innovation 15

Innovation Fixed Costs Airlines Business Model 15

Harvard Business Review

OCTOBER 29, 2015

for example, were once required to have a minimum size of 225gms (eight ounces), which meant that the range of U.S. drink costs only $1 more than the “small” 30 oz. There are already many examples of successful downsizing. If you think that these are just theoretical examples, consider Coca-Cola.

Fixed Costs 8

Fixed Costs Price Constraint Cost 8

Harvard Business Review

MAY 8, 2012

Skype , for example, competes with fixed-line carriers by offering free mobile Skype calls. For example, AT&T had to spend almost $18 billion in a single year to upgrade its wireless networks to handle the onslaught of new traffic. Google has its own contender in the market, Google Voice.

Outsourcing 10

Outsourcing Wireless Telecommunications Core Competence 10

Harvard Business Review

OCTOBER 5, 2017

It could be because “software development typically requires large upfront fixed costs,” meaning that firms that are already pretty large are the ones who can afford to invest in it. For an example of scalable intangibles in action, we can turn to McDonald’s.

Document 8

Document Industry Software Fixed Costs 8

Harvard Business Review

DECEMBER 10, 2012

One example was Orion Pictures , a small studio created by well-regarded, disgruntled United Artists executives in the late 1970s. Regardless, a financing component adds another fixed cost. The key to borrowing effectively is to have a keen understanding of what might go wrong.

Financial Leverage 14

Financial Leverage Film Finance Class 14

Harvard Business Review

OCTOBER 7, 2015

Example: Jolly Inc. Example: Acme Industries and Widget Co. However, free cash flow per share remained impressive at both companies, and fixed cost ratios remained somewhat intact. Example: Happy Co. Example: MineMe Inc. operate in an extremely competitive (borderline oligopolistic) industry.

How To 8

How To Due Diligence Strategy Proposal 8

Harvard Business Review

MARCH 21, 2013

For example, I just paid $3.00 for an energy bar at the airport, which would have cost about $2.00 My willingness to pay the higher price reflects both the convenience to me of getting the bar at the last minute, as well as the fact that the retailer's costs at the airport are likely higher. at my local grocery store.

Price 16

Price Open-book Retail Content 16

Harvard Business Review

SEPTEMBER 18, 2013

Founded only last year by a team of current MBA students, HourlyNerd is a prime example of the disruption in consulting that my co-authors and I discuss in our new article , “Consulting on the Cusp of Disruption” in HBR. HourlyNerd, by encouraging students to bid against each other, likely drives down the hourly cost of projects even more.

McCallum 9

McCallum Consultative Disruptive Innovation Real Estate 9